Thursday, 15 April 2010

Wednesday was the Liberal Democrats' chance to hog all the media attention - possibly the first time that sentence has ever been true.

Just to make them wait a little longer, though...I'm first going to mention Gordon Brown's surprising admission that he was mistaken not to regulate the banking sector more tightly when he was Chancellor.

This is an excellent example of concession and request, taking advantage of our bias towards reciprocity to try to create better feelings towards him. It's a dangerous game though, as it competes with a confidence bias which leads us to place more trust in people who are confident. You could argue that by admitting his mistakes he shows greater, not lesser, confidence - certainly when we say somebody's "defensive" it usually means we think they are unconfident. But doing it two years after the crisis started might not be a good tactic. On balance I think it's positive.

So how about those Lib Dems, eh? Striking a balance between Labour and the Conservatives in several ways:

their manifesto was midway in length between the other two

instead of saying one main thing, like the Tories, or thirty different things, like Labour, they have chosen four themes - all quite salient: fair taxes, education, economic reform and cleaning up politics

their brand positioning is between Labour (big spenders) and the Tories (big cutters) with a "fiscally responsible" message

Whether this last point is an accurate reflection of Lib Dem policies is another matter, but they are definitely perceived as the centre party, taking advantage of voters' aversion to extremes.

Indeed this distinction between brand perception and issues is a theme throughout the campaign, as it always is:

Danny Finkelstein, of the Times, tells the BBC's Daily Politics the public might say they want lots of policies, but actually what they do is "ascribe them backwards to the character they think the parties hold" - so really they judge policies through the prism of personality.

The game theory of the campaign becomes really important for the Lib Dems. Many people are sympathetic to them - arguably most of the population - but won't vote for them because they have "no chance of winning". As soon as they are seen to have a chance - or, as in this election, to be likely power brokers - they will pick up a big chunk of the vote. And simply being taken seriously, as the Lib Dems now are, helps to give people that impression.

It's plausible therefore that the Lib Dems will do much better on May 6th than was expected a few months ago. This would be assisted by the return of tactical voting, which in this election is being deployed both against Labour and the Tories. It would represent a genuine earthquake in British politics if we were to wake up the next day with 150 Lib Dem MPs, 250 Tories and 200 Labour. But it's not impossible. We need only think of the tipping point models of Thomas Schelling to see how quickly things can change if the right expectations build.

Both of the other parties have been playing their social proof card, with Labour corralling 50 more economists to write a letter about the dangers of Tory cuts, and the chairman of WPP helping the Conservatives by suggesting he'd move their domicile back to the UK if the Tories win. But their job today was to somehow halt the momentum of the Liberal Democrats, or marginalise them, and neither have succeeded in doing so.

The polls probably reflect yesterday's Conservative manifesto launch, with the Tory lead back up to 6, 9 or 12% depending which version you listen to. The Lib Dems are steady on between 18% and 21% - tomorrow's results will be very interesting. But tomorrow will be dominated entirely by the first ever leaders' TV debate. As I write, the BBC election news headline is the comically news-free "Historic leader clash gets closer".

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About this blog

This blog is about cognitive and behavioural economics. It discusses their impact on economic theory, and how to apply them in business, especially in pricing and marketing. It also explores how our perceptions and mental models affect the macroeconomy.

My other blog is Pricing Revolution, specifically around innovative pricing models and advice on how businesses can set their prices.

Other things I do

As well as writing this blog, I am chief executive of Inon Pricing Advisers - which uses behavioural economics and psychology research to help companies charge the right prices for their products. Please click through to find out more.

I am also founder of think tank Intellectual Business which publishes research and policy papers on how ideas from economics can be used in business and in the public sector.